tv Nightly Business Report PBS July 15, 2011 1:00am-1:30am PDT
>> susie: search rules! google shares shoot sky high in after-hours trading on a blockbuster second quarter. >> tremendous, tremendous results. i think the most interesting thing is, still core to the business, it's search! >> tom: corporate earnings season heats up with big numbers from google and a healthy quarter from j.p. morgan. it's "nightly business report" for thursday, july 14. this is "nightly business report" with susie gharib and tom hudson. "nightly business report" is made possible by: this program is made possible by contributions to your pbs station from viewers like you.
captioning sponsored by wpbt >> tom: good evening and thanks for joining us. almost $7 billion in sales equals another blockbuster quarter for google, a blowout beginning to earnings for technology companies. susie, internet search and search advertising continue driving the big profits at the web giant. >> susie: tom, google's earnings surged almost 40% and google stock soared as well, up over $60 or 12% after the closing bell. google earned $8.74 a share in the second quarter, about $1 more than analyst estimates. google continued its hiring blitz, adding 2,400 employees
during the quarter. paid clicks, or the number of times internet users clicked on the company's ads, rose 18%, in line with estimates. >> tom: morningstar's rick summer thinks google should be a core holding for investors and he's looking for $720 per share. >> they're still hitting the cover off the ball with their existing business. generating so much free cash flow that they could easily invest hundreds of millions of dollars in these new businesses. that's a pretty powerful position to be in. which is why one of the reasons we love google is really their extreme dominance and what we would call an economic moat, or just extreme competitive advantages in that area. >> tom: before the bell, it was also decent earnings news. j.p. morgan was the first of the big banks to report quarterly results, and if its results are any indication, the banking business continues growing. earnings were six cents better than estimates and up from a year ago. while its retail banking business struggled, its
investment banking and asset management businesses were strong. fewer people were late paying their credit card bills, allowing the bank to set aside less money for bad loans, but the bank socked away more money to settle lawsuits from investors in mortgage-backed securities gone bad. late today, an appeals court allowed mortgage bond insurer ambac to continue with its $1 billion suit against j.p. morgan over bad mortgage investments. >> susie: j.p. morgan c.e.o. jamie dimon also weighed in on the debt ceiling debate today, saying a u.s. default would be catastrophic for the u.s. and the global economy. top lawmakers were back at the white house today, the fifth straight day of talks.
president given lawmakers until tomorrow to compromise. our guest tonight weighs in on how those stalled debt talks could affect your portfolio. she also gives us her outlook for the markets and the u.s. economy. sallie krawcheck is one of the most powerful women on wall street. as president of global wealth and investment management at bank of america, she oversees more than $2 trillion of assets for clients at merrill lynch and u.s. trust. our conversation began with her take on the stock market for the second half. >> the u.s. economy will continue to muddle its way through for the remainder of the year, and the return on equities will be positive for the remainder of the year. >> sallie, what is your take on the economy? so many people say the u.s. economy is in for a prolonged slow-down. >> not atypical after we see see a financial crises. our clients are affluent, high net worth, ultrahigh net worth
clients. we see that they continue to feel very conservative, that they're deleveraging as a group. that's important, because these folks start businesses, run medium businesses, small businesses or corporate executives, and their conservatism feeds through to the rest of the economy. >> do you think that stocks will still prove to be a good investment in an economy that's going to be weakened with high unemployment? >> it is a fallacy in many ways, the belief that economic growth has to be very fast in order for markets to do well. markets can do just fine when there's a view that rates will stay low and that economic growth will continue on in a positive fashion. >> do you think that bonds are a better option? >> at some point there will be a great rotation from bonds into equities. if you look at the yields on bonds, if you look at yields on dividend-paying stocks, if you see economic growth continuing, you could see a great rotation that could be massive in size
quite frankly historically massive in size. >> given all of the bickering in washington over the deficit, will bonds become more risky? >> well, i think by definition, right, we are, you know, moving toward a period -- a period of time here where we've got rating agencies talking about downgrading u.s. debt. doesn't feel the market -- the market doesn't think this is going to happen, but as the clock continues to tick one could see volatility. >> susie: you're just back from italy. how concerned are you about the debt problem in italy, greece, ireland, the whole domino effect? >> we are hopeful in projecting that europe will muddle through. you know, the most recent attacks and the crisis they're undergoing. however, europe and the euro is a difficult situation to have currency -- one currency without one fiscal policy. it is a very, very difficult
balancing act. you know, the combination of that, the combination over time, europe has not seen significant economic growth, you know, combined, makes it's a place where folks need to be a bit more cautious. >> susie: you know, europe is part of the reason u.s. bank stocks are down. what's it going to change investors' concerns about financial stocks? >> in order for investors to return to investors are looking for more certainty around the earnings power of these companies, more certainty around what returns these institutions can earn on their capital, and clearly with some of the reregulation of the financial institutions that are out there, there's uncertainty about what these firms can -- and these banks can -- earn over time. >> susie: what are you telling your clients about how to make money in this difficult environment? >> don't focus on being a stockbroker. if you want some amount of money where you invest in the stock market, because it's entertaining and fun, that's terrific, but for the money that represents the nest egg for the
money that represents retirement, nothing has been -- nothing works better than diversifying those assets. using asset allocation, rebalancing away from the winners, which is unbelievably difficult to do, and into the losers, which is actually even more difficult to do, and being very disciplined about that, that's the way to build a portfolio overtime. >> susie: all right. thank you so much, sallie. great talking to you. >> thank you. >> tom: still ahead, another take on why uncle sam's i.o.u.s aren't the safe bet they used to be. we talk with loomis sayles bond fund manager kathleen gaffney. >> susie: what the fed chairman giveth, he taketh away. stocks fell as ben bernanke clarified yesterday's comments about additional stimulus for the economy. he told senate lawmakers "we are not prepared at this point to take further action." yesterday, he told the house the fed was prepared to act if needed and markets interpreted that to mean over the near term. the dow fell 54 points, the
nasdaq was off 34 and the s&p 500 lost almost nine points. as for trading volume, 923 million shares moved on the big board, over two billion on the nasdaq. >> tom: the weak housing market and the end of federal stimulus spending has hit city halls across the country. hollywood, florida's city budget is $38 million short. lincoln, nebraska needs to find another $9 million by september. and north las vegas has a $9 million budget gap. kasim reed is the mayor of atlanta. >> mr. mayor, welcome to "nightly business report." >> glad to be with you. >> tom: you were recently successful in closing a budget gap, overhauled pension obligations, including a new 401(k) type plan for new employees as opposed to traditional plans. how's that gone over? >> i think it's gone over well. we passed it at the end of the day after a very tough debate with 15 votes, but it's going to
yield $270 million in savings over 10 years, $500 million over 30 years. it's freed up between $22 million to $35 million in the budget. we were able to balance our budget and finish it in pretty good fiscal shape. we also put $20 million in reserve. >> tom: how about hiring? is it going to allow you to hire more, or will it hurt hiring because it's not a traditional pension anymore? >> tom, we're seeing the number of applicants who apply for every opening we have is very high. we don't see that in the short term at all, just because of the overall economic environment. >> tom: okay. >> we're able to attract real talented people to the city right now. if that changes, we may have to adjust. >> tom: mr. mayor, how is your budget impacted if there's no deal to raise the federal debt ceiling in early august and interest rates move even higher? >> i think it's going to be devastating. obviously all of dollars will be
blocked. we receive the largest tiger 2 grant in the united states of america. we would be concerned of having a recession of the $46 million award there. across the board all of the partnerships that we have with the federal government, where they're putting in significant resources, all of that would be at risk of being revised down. that would hurt job creation. >> tom: would it negate the savings you were able to realize by reforming your pensions? >> i don't think it would do that in the city of atlanta, because fortunately we've been able to build up pretty strong reserves, and we're not to reliant on federal resources. the federal resources we receive are really for special opportunity. >> tom: okay. >> but our day-to-day budget is pretty favorable. >> tom: mr. mayor, we appreciate your time tonight. best of luck. it's the mayor of atlanta, georgia, with us tonight, kasim reed. >> thank you. >> today, tom, thes
were talking about ben bernanke, the disappointing comments. tomorrow my bet is they'll all be talking about google, and excited about it. >> certainly at the opening bell, because that clearly was blowout numbers we mentioned at the top of the program. the day drifted lower, though, ahead of those numbers, susie. let's get right to it with tonight's "market focus." ahead of the blowout google
earnings report after the close, stocks floated lower throughout the session. leading the dow industrials lower was alcoa, which reported its own strong earnings report on monday. shares fell 2.5%. alcoa has drifted lower since it kicked off earnings at the beginning of this week. j.p. morgan led the dow gainers, up 1.8%. we detailed the earnings earlier in the program, but those results did not help the other big bank in the dow. bank of america dropped another 1% plus, sending it to fresh two-year lows. very active today trading. according to bloomberg, bank of america has offered to settle with mortgage bond insurer m.b.i.a. in their fight over mortgages gone bad. m.b.i.a. jumped more than 9% on triple its usual volume. word of two companies splitting apart. first, energy giant conoco- phillips. shares bucked the weaker market today, up 1.6%. volume spiked, more than 60 million shares, compared to a normal day of about eight million.
here's the deal. conoco will split into two companies. one will be its refining and marketing operations, the second will be its exploration and production businesses. the split does not require a shareholder vote, but regulators, including the i.r.s., need to okay it. assuming all sign off on the strategy, the split is scheduled for next year. after the close, food conglomerate ralcorp announced a spinoff of its own. it will split off its post foods cereal business into a separately traded company. the breads and bakery operations will retain the ralcorp name. ralcorp stock jumped in early may when con-agra made an unsolicited buyout offer. look at this move here. it rejected that, share price has been floating lower. shares were down 4% after the close. it also cut its earnings outlook, thanks in part to raw material costs increasing faster than it can raise retail prices.
speaking of buyout efforts, the fight for pipeline company southern union continues. shares added another 4% after williams companies upped its bid to $5.6 billion in cash. the effort is estimated at $44 per share for southern. williams stock was up 1%. energy transfer has offered cash and stock, valued at $46 per share thanks to tax issues. e.t.e. stock sank about 1.5%. it was a buyers holiday for marriott today, with shares falling more than 6.5%. see it moving down here. its forecast for the year was lukewarm as it lowered the top end of its earnings guidance. marriott's news hit other hotel operators. hyatt fell almost 5%. wyndham and starwood dropped a little more than 2% each. finally, specialty
pharmaceutical company medicis saw more than 10 times its average daily volume. shares fell almost 4%. the girlfriend of the company's c.e.o. was found dead at his home. san diego homicide detectives have launched an investigation. and that's tonight's "market focus." >> susie: one year ago today, the u.s. closed a chapter on its worst environmental disaster ever. on this anniversary, workers finally capped british petroleum's ruptured macondo oil well in the gulf of mexico. the disaster sent millions of barrels of crude into the gulf, and it's still reverberating through the oil industry. diane eastabrook explains. >> reporter: it took three months to plug the gushing macondo well, but the crackdown on the oil industry that resulted from the disaster could last for years. the obama administration toughened regulations for deep- water drilling and dismissed inspectors considered too chummy with oil companies. fadel gheit, managing director for oppenheimer, says replacing those inspectors has been
difficult and that's slowing the permit process. >> these are people who have engineering and science backgrounds to look at a structure in the middle of the water and decide whether it is sound, safe and meets all government regulations. >> reporter: since the president lifted the moratorium on deep water drilling last october, oil companies have applied for 28 permits in the deep waters of the gulf. so far only 11 have been approved. while gheit says some companies are exploring other regions like brazil and malaysia, he thinks the gulf will still attract drillers. >> the deep-water gulf of mexico, at the current oil and gas prices, is the most profitable area on the face of the earth. >> reporter: gheit calls the gulf disaster a very expensive lesson, but he thinks it created a better and safer oil industry. diane eastabrook, "nightly business report," chicago.
>> susie: risk-free, the safest asset in the world. that's how investors across the globe have viewed u.s. treasury bonds. is that about to change? and what, if anything, should you do about it? with the u.s. credit rating under review, we thought now was a good time to take a hard look at the role treasuries should play in your portfolio. for answers, darren gersh spoke with kathleen gaffney, the co- manager of the $20 billion loomis sayles bond fund.
>> you have zero invested in the treasury market right now. >> zero. >> $20 billion bond fund. >> yes. >> what does that say about the treasury market? >> it says we don't think it's very attractive. we don't think it's attractive in the short term because of the potential volatility. why take the risk? i'd rather be in a u.s. corporate bond, because corporate balance sheets are in good shape. i'd rather be invested in canadian government for good liquidity and a little bit of additional yield for a company that is practicing fiscal discipline. >> for the last 30 years, people have been told, you want safety, you need to have some treasury bonds if your portfolio. you know, they're risk-free. >> yes. >> is that still the case? >> that is not the case. in the short term, again, because of the potential volatility, that you could see rates through a loss of confidence spike up. so why take that risk?
in the long run, as inflation really starts to build, with the low returns here, you're really looking at very negative returns. >> you talk to a lot of investors. >> uh-huh. >> do you think that that message is getting across, that what people have done in the last 20 years is not necessarily going to work for the next five to ten years? >> i think that's a tough message to hear, mainly because it's human nature, and it's difficult for people to change their ways until the market actually starts to change. so until we see negative returns on treasuries, i think people will feel very comfortable in that sector. so when it happens, it will happen quickly. >> i know personally i don't like to hear the term "negative return." >> nobody does. >> an oxymoron, right? a negative return.
if you would like to avoid experiencing a negative return, what sensible things could people do now? >> the sensible thing to do is make sure your fixed income allocation has broad flexibility. you look for flexibility in terms of other sectors. corporate bonds, non-dollar bonds, convertible bonds. look for those types of securities within a bond fund, and that gives you some diversification away from the broad market. >> kathleen gaffney, the comanager of the loomis sayles bond fund, thank you for your time. >> thank you. >> tom: tomorrow, darren talks to georgia congressman tom graves about why he thinks the debt ceiling should not be raised. plus, citigroup reports its quarterly results and we'll see the june reports on consumer prices and industrial production. also tomorrow, our friday "market monitor" guest talks dividend yields and growth potential. he's ted cronin, president of manchester capital.
>> susie: the proposed merger between the n.y.s.e. euronext and deutsche borse has cleared one of its biggest hurdles. deutsche boerse shareholders approved the $10 billion deal today. n.y.s.e. shareholders did the same last week. the deal, which was announced in february, is still subject to regulatory approval in the u.s. and europe. the combined exchange would create the world's largest exchange by revenue. >> tom: the scandal surrounding rupert murdoch's newscorp has spread to the u.s. the f.b.i. has opened an investigation into whether murdoch newspapers targeted the phones of 9/11 victims. it comes as rupert murdoch and his son, james, have agreed to testify before a british parliamentary panel. next week, the group will look into phone hacking and bribery by employees of newscorp's british newspaper empire. today, rupert murdoch says his company will recover from any fallout.
>> susie: small businesses are often called the engine of the nation's economy. that's why tonight's commentator believes it's key to teach the nation's kids to think like entrepreneurs. with tonight's "kids and cash," here's jack harris, president of junior achievement of georgia. >> for generations, we've been taught to believe in the
american dream-- owning a house, buying a car, living the good life. but this generation of kids could be the first that might not do better financially than their parents. that's why it's so important to teach business to children at a young age. at junior achievement, we work with millions of american students every year, kindergarten through high school, empowering them to own their future economic success. and it works! in fact, just recently, j.a. high school students participated in an innovation camp at emory university. it was a 24-hour lock-in in which students worked alongside business leaders all night to develop a smartphone to compete with the iphone. the kids created a business plan and a marketing presentation, and then pitched it to a panel of judges, just like professionals do. it was amazing to see these young masterminds in action, and most importantly, they left with a stronger sense of their own ability to make it in the real world. nearly one of every three high school students drops out before graduating.
that's a shocking number. but here's a hopeful number. nearly nine out of 10 of our students say j.a. programs helped them to prepare for the working world and to handle their personal finances. fed chairman ben bernanke was so impressed with the training j.a. students get, he helped open our newest j.a. finance park. today's young people, who are tomorrow's homeowners and business owners, need a strong, solid foundation in financial literacy and we as adults need to give it to them so they can be successful balancing a budget at home or at work. i'm jack harris. >> susie: that's "nightly business report" for thursday, july 14. i'm susie gharib. good night everyone, and good night to you too, tom. >> tom: good night susie. i'm tom hudson. good night everybody. we hope to see all of you again tomorrow night. "nightly business report" is made possible by: